BRADENTON, Fla. - Moody's Investors Service downgraded Glenville State College, W.Va.'s rating to junk, citing the school's exposure to $25 million in bank debt and other fiscal stresses.
Moody's downgraded the school two notches, to Ba2 from Baa3, June 12 and revised the outlook to negative.
The lower rating affects $4 million in Moody's-rated lease-back bonds, which are subject to annual appropriation by the college.
GSC has a total of $35 million in bonds outstanding, including variable-rate debt and related swaps, and $25 million in bank bonds held by BB&T that are subject to demand payment.
"The downgrade to Ba2 with a negative outlook is driven by Glenville State College's extended period of fiscal stress, elevated financial leverage, and extremely weak liquidity that is insufficient to cover $25 million of bank debt, which the bank has the option to call on Aug. 31, 2014 or any day thereafter upon 120 days notice," said analyst Erin Ortiz.
The rating action also reflects the college's negative operating margins, very thin debt service coverage, and a steeper drop in enrollment than originally anticipated with enrollment pressure likely to continue, Ortiz said.
Glenville State registered 315 first-year students in fall 2013 compared to the prior three years, which averaged 390 students.
Full-time enrollment dropped 8% to 1,330 in the fall of 2013, compared to the prior year. Management projects that fall 2014 enrollment will remain flat or increase grow slightly based on applications so far, Moody's said.
Located in Glenville, the accredited liberal arts and sciences college is the only public institution in central West Virginia. It was founded in 1872.
Moody's said the GSC faces a number of challenges, including "dual credit challenges of razor-thin liquidity and a complex debt structure." Fiscal 2013 monthly liquidity of $3.2 million covered $25 million of bank demand debt by just 12.9%.
The college also had negative operating margins, as calculated by Moody's, averaging negative 8.8% from fiscal years 2011 to 2013.
While operating performance improved considerably in fiscal 2013, margins are expected to weaken in 2014 due to the enrollment decline, the rater said. Additionally, state appropriations were about 9% lower in fiscal 2014 than in the prior year and are expected to be even lower in 2015.
